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Broker routing decisions in limit order markets

David Cimon ()

Journal of Financial Markets, 2021, vol. 54, issue C

Abstract: I model investors who are only able to access equity markets through a broker. These brokers have an incentive to route based on the fees charged by exchanges, rather than on execution quality for their clients. This conflict of interest reduces investor utility, as they must pay higher commissions to have orders sent to exchanges with the best market quality. I show that regulators may be able to improve investor utility by allowing investors to self-direct order flow.

Keywords: Brokers; Market microstructure; Market quality; Market fragmentation; Make/take fees (search for similar items in EconPapers)
JEL-codes: G24 G28 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Broker Routing Decisions in Limit Order Markets (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:54:y:2021:i:c:s1386418120300719

DOI: 10.1016/j.finmar.2020.100602

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Journal of Financial Markets is currently edited by B. Lehmann, D. Seppi and A. Subrahmanyam

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